Investors Panic! Pound Under Pressure Amid Tariff Threats and UK Fiscal Risks
The pound sterling started the week with further weakness, hitting its lowest level since June 23 against the US dollar. The decline in the British currency was triggered by a combination of domestic concerns and global tensions, particularly after US President Donald Trump threatened new tariffs against several major trading partners, triggering risk aversion in financial markets.
Domestically, pressure came from less than encouraging UK economic data. The Office for National Statistics (ONS) reported that the UK economy shrank 0.1% in May, following a 0.3% contraction in April. The decline in factory output was a major contributor to the growth slowdown, reinforcing concerns about worsening fiscal risks.
Market sentiment was also dampened by the latest fiscal policy from Chancellor of the Exchequer Rachel Reeves, who proposed expanding social welfare programs. The bill is expected to add £4.8 billion to the UK budget in the 2029–2030 fiscal year, increasing the risk of a UK fiscal imbalance.
This week, investors will focus on June inflation data (CPI) and the labor market report, which will be released on Wednesday and Thursday. A recent report from KPMG showed that labor availability rose to its highest level since November 2020, reinforcing expectations that the Bank of England may begin to ease monetary policy.
The market is now pricing in a 25 basis point cut by the Bank of England to 4% in August, a scenario that typically puts additional pressure on the pound. The combination of global tensions, weak economic data, and the prospect of interest rate cuts has left the GBP vulnerable to further weakness in the short term.
Source: (ayu-newsmaker)
